The Key to Successful Procurement Negotiations? Be Prepared!
- Contract Management
- Supplier Management
- Supply Chain Management
Supplier negotiation skills are essential for anyone working in procurement. It’s become standard for companies to train their employees on negotiation tactics to get better deals from suppliers, but these skills are also useful outside of the buyer-supplier relationship. It’s often said that the most challenging negotiations are not the ones with suppliers, but rather the internal ones. Negotiating is an important part of any relationship, including those with stakeholders and adjacent functions like logistics, research and development, and quality management.
The Number One Tip for Successful Negotiations? Be Prepared!
Preparation is the ultimate key to success because negotiations are complex by nature. This isn’t a particularly new concept. In 2014, Jeff Weiss wrote in the Harvard Business Review, “Preparation is the key to any successful negotiation, but few people spend enough time on it.” Instead, too many view negotiating as a skill that you either have or you don’t. They assume that if you have it, you’ll be good at thinking on your feet to get what you want.
More recent research out of the University, from Harvard Law School’s Program on Negotiation, advises preparing the best alternative to a negotiated agreement, or BATNA. Essentially, ask yourself what you will do if you can’t get the result you need. This increases bargaining power going into the discussion.
Supplier negotiation isn’t easy. Not only are there lots of terms to discuss and keep track of, but negotiation is also a “soft” domain, which means that psychology and behavior play an important role. When you’re negotiating, you have to pay close attention to the other party’s words and body language and you have to be aware of your own behavior and reactions. Behavioral economists have written countless books and performed numerous experiments that, in short, conclude that our brain is pretty good at tricking us in situations like negotiations.
This is why preparation is the number one factor that determines negotiation success. If you’re well prepared and know your stuff, you’ll be less likely to lose sight of your objectives. You’ll have a better idea of what to expect from the other party, and you’ll see more success.
Preparation covers different areas:
- The object and terms of the negotiation: what am I ready to accept/not accept? What about the other party?
- The context of the negotiation: who, when, where, how, before, after?
- The goal of the other party: what do they want most and what can you offer them?
This may look like a lot of information, but keep in mind that you’re not just buying an item at a street market or bazaar! That’s not negotiating; that’s bargaining! The terms are simple: how much cash do you want? The value definition is subjective. The stakes are pretty low. Not so in a negotiation situation with a supplier.
In a professional supplier negotiation, you want to maximize the chances of a positive outcome short term and long term. Therefore, you have to do your homework and prepare. In our recent post, Molly Fletcher emphasized the importance of looking at the human element of the deal. Identifying priorities beyond just money is key, and this is all part of preparation. The good news is that there are ways to prepare better and more efficiently. The key is to have the data and information you need readily available! This is where having a procurement solution in place helps tremendously.
Here are a few examples:
- Information on the supplier: company, subsidiaries, history, performance metrics, etc.
- Information on the person you will negotiate with: experience, goals, needs, etc.
- Information on past negotiations
- State of the business with the supplier: spend, quality, trends, existing contracts
The list above is just to illustrate that the information needed is a mix of hard and soft facts. Just using an analytics approach is not enough. Context is important. Supplier relationship management is not just a list of suppliers with hard facts for each. It should also be a resource of information about the past activity between your company and the supplier, including things like previous visits and the last negotiation. Knowledge management is critical!